Severn Trent drained of £19m trying to avoid takeover

Water giant spent £19m on lawyers to rebuff three takeover approaches

Severn Trent today admitted it spent £19 million on lawyers and advisers when it rebuffed three takeover approaches, ultimately worth £5.1 billion, from a Canadian-led consortium.

When the FTSE 100 water firm saw LongRiver make its first approach in May, some in the City described it as “the return of M&A boom times”.

And while the deal didn’t come off, the advisers still raked in huge fees. Trent, which brought Citi, Barclays, Morgan Stanley and Rothschild on board for banking advice, plus lawyers from City giant Herbert Smith and spinners from PR firm Tulchan, said it “incurred costs for advisory, legal and other services of approximately £19 million in aggregate”.

Yet Michael Rolland, chief executive of Borealis, the Canadian infrastructure company that led the consortium, last month claimed that there had not even been much dialogue between the two parties.

“Since we submitted our [initial] proposal on 14 May 2013, no member of the consortium or its advisers has met any of the directors of Severn Trent or its advisers, despite repeated requests,” he said.

The consortium — also made up of a Kuwaiti sovereign wealth fund and UK pension fund the Universities Superannuation Scheme — abandoned its buyout plans last month after the utility spurned multiple approaches. Trent’s board claimed the bid, worth £5.1 billion, “failed to value the attractions of Severn Trent’s rare combination of yield, inflation-linked business model and potential”. Shareholders were set to ask questions of Severn Trent’s board at today’s annual meeting in Birmingham.

Elsewhere, the utility had good news for heatwave-riding Britons, as it said average consumption actually fell between the start of April and yesterday — and made no reference to a hosepipe ban. The wet winter means reservoirs are fairly full.

Severn Trent added that its forecast bad debt level is still at around 2.2 per cent of turnover for the full year but it is “continuing to monitor developments such as unemployment levels and changes to the UK benefits system closely” to see if customers will face more struggles paying bills.

Customer prices rose by 2 per cent from 1 April, reflecting November’s 3 per cent inflation, which is used as a yardstick in the regulated industry.

The shares ticked up 0.6p to 1746.6p — well below both the 2090p seen in the days after the bidding interest emerged, and the highest LongRiver bid of 2190p a share.